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10/16/2012

More than the Mainstream: Mish’s Global

Last month, the Dow, S&P 500, and Russell 2000 were all up 4-6%. After that round of QE, everyone in the financial markets and mainstream media seemingly cheered.

“It’s clear that the global leaders are doing all they can to combat the slow economy…we look forward to a strong year-end rally,” Ryan Detrick, chief technical strategist at Schaeffer’s Investment Research said on CNBC.

“The new Fed policy suggests that a housing market recovery is key to stimulating labor markets and eventually spurring a full-fledged recovery.” Augustine Faucher, VP and senior macroeconomist at PNC Financial Services, said when interviewed on Foxbusiness.com. “By keeping mortgage rates low - and possibly pushing them even lower - through Fed purchases it will hopefully give the fledgling housing recovery some much-needed momentum,” he added.

In addition, Faucher noted the Fed has made it clear it will act again if it feels the recovery fails to gain traction.

All of the mainstream media seemed like cheerleaders before a hometown quarterback. Get out of the way, the ‘Big Man on Campus’ (BMOC) has come in to save the day, metaphorically speaking.

So we’re in the clear, right?

On the contrary, something left me wanting more. Haven't we seen this before? Ben Bernacke - the proposed big man on campus - was supposed to solve our economy's problems with QEI, II, and Operation Twist. Given that he also had help from other BMOCs in Japan, the UK, and of course the really dreamy Super Mario of the ECB, why do we still need these massive new plans?

So I immediately started searching the blogosphere to get an editorial voice to give this news some context. I came upon Mish's Global Economic Trend Analysis. The blog is chock-filled with good, hard hitting data. On the subject of QE III he doesn't just follow down the well-worn road of praising Ben the BMOC. He shows how each expansion should effectively be seen as one long money creation exercise.

Importantly, none of these expansions have been unwound (yet) in any of these countries. They are simply creating new money and storing it in the digital vaults of the central banks. While there is no hard and fast natural law saying they need to be done soon, it is clear when you see that five-year graph that when they are unwound there should be some serious pain in the capital markets.

–Aram Fuchs

Aram Fuchs, General Partner, Fertilemind Capital, is captivated by the ability of the Internet to change buyside research. He founded a website called Capitalist Collective, where he invites finance professionals to share their research and learn from others.

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